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April 16, 2016

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China’s growth slows to 6.7%

By Feng Jianmin | April 16, 2016, Saturday | Print Edition

CHINA’S economy expanded at its slowest rate in seven years over the first quarter of 2016, though recent economic indicators have pointed to a recovery.

The nation’s GDP for the January-March period rose 6.7 percent year on year to 15.85 trillion yuan (US$2.5 trillion), the National Bureau of Statistics said yesterday, adding that the service sector’s contribution to the total increased by two points to 56.9 percent.

While the growth figure was slower than the 6.8 percent recorded for the fourth quarter of last year, it was in line with market expectations.

The economy made a “good start to the year,” with its structure further optimized, and major economic indicators improving across the consumer, manufacturing and investment sectors, NBS spokesman Sheng Laiyun told a press conference.

The growth rate was “relatively high compared with developed and emerging markets,” he said, adding that employment was stable, consumer inflation was mild, and the increase in people’s disposable income was steady at 6.5 percent.

Other data suggested a recovery of growth momentum in March. Industrial production in the month rose 6.8 percent year on year, strengthening from a gain of 5.4 percent in the January-February period.

Fixed-asset investment rose 10.7 percent in the first quarter, 0.5 percentage points faster than over the first two months.

Real estate investment had its best quarter for a year rising 6.2 percent in the first three months, while retail sales growth accelerated to 10.5 percent in March from 10.2 percent over the first two months.

Also yesterday, the People’s Bank of China said that Chinese banks extended 1.37 trillion yuan worth of new yuan loans in March, beating analyst expectations.

Earlier data showed that exports in March rose for the first time in nine months, while the manufacturing sector expanded for the first time in eight months, with the Purchasing Managers’ Index up 1.2 points from February at 50.2.

“We can conclude that the first-quarter economy was stable, structurally improved and better than expected,” Sheng said. “The improved data in March lead to a basic judgement that the economy has shown periodical signs of bottoming out.”

He warned, however, that downward pressures remain due to uncertain international conditions and difficulties under structural reforms.

“China’s future growth is likely to follow an L-shaped trajectory in the long run, but in the near term, it may present a U- or W-shape due to fluctuations,” he said.

Julia Wang, China economist at HSBC, said economic recovery is dependent on increased domestic demand, while monetary and fiscal support are also needed to lift infrastructure investment and put the recovery on a surer footing.

“With economic activity data having taken a turn for the better, the key question now is whether the recovery can be sustained,” she wrote in a note.

“Given the outlook on both the housing market and the export front remain uncertain, continued recovery in the coming months will depend more on whether policy-makers deliver the fiscal easing.”

The bank forecast full year GDP growth of 6.7 percent.

Marie Diron, a senior vice president at Moody’s Sovereign Risk Group, said that stimulus measures must be implemented with caution so as not to increase longer term imbalances, particularly if they lead to a rapid increase in investment by state-owned firms that doesn’t yield benefits in terms of profitability or added value.

Signs that policy stimulus is propping up growth include the relatively rapid growth of fixed-asset investment — nominally 10.7 percent, which is nearly twice as fast as GDP as a whole, according to Diron.

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